Financial Models to go for Solar

Financial models for Solar, Capex vs Opex model, Boot Model for Solar

In India, Solar power plants are possible under three financial models:

A. Capital Expenditure (CAPEX) Model

B. Operational Expenditure (OPEX) Model

C. Loan Model

The first one requires to pay an upfront cost, but the second one requires no such cost. Let us understand these models one by one.

A. Capital Expenditure (CAPEX) Model:

  • In capex model, the cost of supplying and installing the solar power plant is borne completely by the consumer(client) and hence requires client investment.
  • The end consumer owns the asset (Plant) and can claim accelerated depreciation.

B. Operational Expenditure (OPEX) Model:

This model is also referred to as Build Own Operate Transfer (BOOT) model or Zero Investment Solar Model.

  • In opex model, the investor(solar power producing company) takes care of the investment required for the solar power plant and hence, investor owns the asset (Plant). Consequently, the accelerated depreciation benefits are claimed by the investor rather than the client.
  • The power producing company is also responsible for Design, Engineering, Procurement, Construction, Monitoring, and Maintenance of the solar power plant.
  • The consumer and the producer agree a PPA (power purchase agreement) for a decided duration of time, which is typically 15-25 years. During the tenure of PPA, the consumer pays the producer for the power generated at a decided tariff. The tariff is usually 30-40% less than the grid-tariff which allows for considerable cost savings to client.
  • The client is billed every month on the basis of actual energy generated by the solar plant.
  • After the PPA terminates, the asset is transferred to the consumer.

Which model is best for me?

For consumers that have adequate manpower/expertise for O&M, rooftop access concerns, availability of funds upfront, CAPEX model is better. Consumers in states that have net-metering regulations can take benefit of the same in case they have substantial excess generation.

On the other hand, consumers who prefer not to take responsibility for the system O&M, do not have rooftop security concerns and prefer to pay on a monthly basis rather than bulk upfront payment may choose to go for RESCO model.

C. Loan Model 

The third model, that is relatively new and catching up in India is Loan or Lease model. Here, the client invests only 30-50% of Solar power plant costs and takes up rest of the investment as loan from banks or any other financial agency. The customer pays back this loan through instalments.

When the solar plant is installed at the site of customer, it results in cost savings in electrical bills which aids the instalments required to be paid by customer.

Yellow Haze energy provides all the three models to go for solar.